Alleged by one and denied by the other

It is important that clients understand their policy wordings and are also made aware of all exclusions in a policy in order to understand what they are covered for and what will stand on grounds for a rejection of a claim. We summed up some case studies from the Ombudsman for Short-Term Insurance’s (OSTI) briefcase, which we thought would be interesting for our readers.

Change in use of residential property

Mr D submitted a claim to the insurer in respect of fire damage to the outbuilding on his property. Mr D submitted that his house and outbuilding were both used for private purposes, hobbies and working from home. He advised the insurer’s assessor that he had no idea how the fire had started, but that he assumed that it was caused by one of the batteries that had been charged. At the time of the incident, only the family camera and private home drill were on charge. In addition, the area where the fire started was the same area where the electrical junction box was located.

Mr D informed the insurer’s assessor that the fire started in the outbuilding where he builds light remote aircrafts and that this was in part a hobby and in part a business. The insurer rejected the claim on the grounds that Mr D was using the outbuilding for business purposes. The insurer submitted that Mr D’s policy was a homeowner’s policy and had not been taken out for any commercial or business purpose. The insurer submitted that irrespective of the cause of the fire there was a material dispute of fact as to the use of the property.

Mr D advised that he did work from home and from an office in Stellenbosch. The outbuilding was used to store his personal property such as computers, printers and a phantom drone and was a workspace for his hobby of building radio-controlled airplanes. He advised that there were two possible scenarios for the cause of the fire. The first one being that the fire could have started by the batteries on charge. The second one being electrical (electricity junction box) located on the wall where the fire originated. He stated that this area suffered a number of power surges, failures and partial failures in the days leading up to the fire. Mr D submitted that the insurer’s rejection of the claim on the basis that the fire occurred as a result of business activities was unfounded and unsupported by any evidence.

The insurer, according to OSTI, had not presented any facts to substantiate its version that Mr D was using the outbuilding for business purposes. The insurer sought to place reliance on the alleged distinction between its service providers’ versions and that of Mr D. Accordingly, the Office recommended that the insurer settle the claim in full. The insurer agreed to comply with the recommendation and the claim was settled.

Disclosing material information

Ms A was involved in a motor vehicle accident. Her claim was rejected by the insurer on the ground the insurer learnt, during the validation of a claim by the insured, that in January 2007, a previous insurance policy held by Ms A had been cancelled due to fraud or dishonesty by the previous insurer. This cancellation was based on the previous insurer’s investigation into an incident in which Ms A admitted to having willfully supplied incorrect information relating to items claimed for.

The new policy had been underwritten on information contained in a proposal form, in which the previous cancellation was not disclosed by Ms A. The insurer’s submission was that, had the previous cancellation been disclosed, it would not have accepted the risk. Ms A’s argument against the decision was that the proposal form did not specifically require her to disclose this information and that she truthfully answered what was asked of her.

Although the proposal form did not specifically ask of Ms A to disclose previous cancellations, OSTI noted that under the heading ‘General Details’, the insurer provided that it was dependent on the insured providing true, correct and complete information and that all material information, whether asked or not, had to be disclosed. In OSTI’s view, the wording created a clear duty on Ms A to disclose the information relating to the previous cancellation. OSTI further found that the information which Ms A withheld related to the acceptability of the entire risk and not only the single risk of a motor vehicle. In addition to the questions contained in the proposal form, the policy wording, which Ms A did not dispute having received, reiterated the responsibility that Ms. A had to disclose any material information which she was reasonably expected to know.

OSTI upheld the insurer’s decision as it found that there was a material non-disclosure by Ms A which entitled the insurer to reject the claim and void the policy.

Selecting the repairer

Mr M was involved in a motor vehicle accident with a third-party vehicle. He lodged a claim with the insurer on the same day. The insurer requested Mr M to take his vehicle to a panel beater on the insurer’s panel of repairers. Mr M was told that he would be without a vehicle while his vehicle was being repaired and that the repairer did not have any courtesy vehicles to loan him during the repair period. He asked the insurer if he could go to another panel beater as he needed a courtesy vehicle.

Mr M said he received a telephone call from a gentleman who identified himself as Lucky from a panel beater. Lucky told him that he would repair his vehicle on behalf of the insurer and that he had a courtesy vehicle for him to use. The quoted repairs amounted to R77 000 which the insurer said was too high. The insurer’s assessor went to the panel beater and a quote in the amount of R65 967 was agreed on. The insurer advised that it would proceed with the claim but that it would pay the agreed amount into Mr M’s account and that he would then need to pay the panel beater. Mr M agreed to this arrangement. When Mr M went to collect the vehicle, he was informed of a difference in price on the parts in the amount of R11 845. Mr M advised that he informed the insurer and that the insurer declined to pay this additional amount.

The amount settled on

Mr M was advised that the assessor would do an assessment on the damage using the insurer’s rates and that the quote that the assessor provided would then be the amount that the insurer would be prepared to settle the claim on. The insurer again explained to Mr M that as the panel beater was not on the insurer’s panel of service providers, the insurer would have to offer Mr M a cash payment and that he would have to make arrangements to have the vehicle repaired in his own capacity.

Mr M claimed that he did not have any relationship with the panel beater and that it was the insurer who appointed the panel beater. This was, however, not substantiated by Mr M. It was, in fact, at the insistence of Mr M that the vehicle was repaired at this particular panel beater so that Mr M could have access to a courtesy vehicle during the repair process.

It was agreed that Mr M would continue to use that panel beater on the basis that the insurer pay Mr M cash, in full and final settlement and that no further claims could be brought against the insurer in respect of the repairs to the vehicle. The claim was paid based on the insurer’s own assessor’s quote and not on an agreed quote between the panel beater and the assessor. OSTI found that the insurer was justified in its decision to decline liability for the price difference and that there was no basis on which OSTI could ask the insurer to pay any further amount.

Writer’s Thoughts:
The first case reminds us of the importance of brokers in helping clients understand their policies… even though the insurer’s rejection of the claim was unsupported by any evidence. As for Mr D, the trap was set from the beginning. He accepted the final settlement. Perhaps he misunderstood the contents of the agreement or had an incorrect impression. The second case shows us that non-disclosure is still a very serious thing… policyholders still fail to understand the consequences of their actions, even though the obligation is clear cut in the text of the policy or proposal form. Do you agree? If you have any questions please comment below, interact with us on Twitter at @fanews_online or email me - myra@fanews.co.za.